2005 MUTUAL FUND REPORT

Investors Moving From 'Value' to Growth Stocks

Investors' shift back toward some big-name stocks in the fourth quarter wasn't the only trend that got Wall Street buzzing.

The market also continued to move away from so-called value stock sectors in favor of growth-oriented sectors. That shift began in the second quarter, and picked up in the second half of the year.

Value stocks -- those that appear underpriced relative to earnings or other measures -- had been the market's stars for most of this decade.

By contrast, growth stocks -- shares of companies whose earnings are expected to grow at a faster-than-average rate -- have been laggards. Many investors have shunned growth issues after overpaying for them in the late 1990s, then losing huge sums when the stocks plunged in the 2000-02 bear market.

But interest in growth shares continued to revive in the fourth quarter. The average tech stock mutual fund rose 4% in the period, beating the 2.3% gain of the average U.S. stock fund, according to Morningstar Inc.

Also, small-cap value stock funds, one of the best-performing market sectors of the last five years, took a back seat to small-cap growth funds in the quarter. The average small-cap value fund rose 0.7%, while the average small-cap growth fund gained 1.7%. That marked the third straight quarter that small-cap growth outpaced small-cap value.

Still, other classic value sectors continued to shine. Financial-sector funds jumped 7.1% on average, amid hope that the Federal Reserve would soon end its credit-tightening campaign.

Real-estate-oriented funds were up 2.6% in the quarter and 11.7% for the year, on average.